Mid-sized IT services companies get Cloud, cost-efficiency boost

Mid-sized IT services firms have managed to reduce the impact of Covid-19 pandemic on the back of proactive cost management and increasing demand by clients in areas like Cloud migration and mobility. In the quarter ended June, these companies have outperformed top-5 IT services players in the country on revenue and profit metrics.

According to data sourced from Capitaline, the revenue of nine mid-cap IT services firms’ in an average rose 8.9 per cent on a year-on-year (YoY) basis, while it stood at 4 per cent for the top-5 firms. The mid-cap players also marginally outperformed their larger peers in terms of profit clocking, with their bottom line growing 1.6 per cent YoY, while it remained largely flat for the latter. Cost reduction was one of the main levers used by the companies to minimise the lockdown impact. In the June quarter, Pune-headquartered Hexaware Technologies reported a 20 per cent jump in revenue when compared with the corresponding period last year.

According to R Srikrishna, chief executive officer of the firm, freeze on hiring of both laterals (experie­nced employees) and freshers during the quarter and a few performance-based exits had naturally helped the company in reducing cost. The company’s headcount fell around 1,200 sequentially. Mindtree’s total expenses, too, fell 4.2 per cent to Rs 1,659.2 crore yearly, mainly because of reduction in subcontracting and travel costs.

Similarly, engineering and R&D services firm Persistent Systems clocked a 17 per cent jump in revenue and 9 per cent increase in profit on YoY basis owing to increased traction in areas such as Cloud migration and mobility solutions. The firm has started a new IBM Cloud Pak solution deploy­ment practice to help migr­ate and modernise IBM workloads across all Cloud environments, including IBM public Cloud and IBM Cloud services.

“Cloud migration and digital businesses had become the need of the hour to ensure business continuity plans of clients and that factor has helped some of the mid-cap IT companies beat Street estimates,” said Omkar Tanksale, IT analyst at Axis Securities. “It has also resulted in significant deal wins across the board. From Q2 onwards, deal ramp-ups will happen and billing will ensure the momentum continues.” Experts said the performance of the mid-tier IT firms to improve further  on the back of the large deals bagged by the companies despite restrictions placed on travelling. For example, Hexaware posted $46 million in terms of new deal wins in the first half of 2020, which is 60 per cent higher YoY when compared with the same in the previous year and highest in the past three years.

LTI Infotech expects revenue growth from October-December as it has won multi-million dollar deals involving Cloud migration from the UK-based wealth management firm and American aerospace firm. It also added 16 new logos, including one Fortune 500 firms from the manufacturing vertical. “Before the quarter started, there were appreh­ensions that mid-sized IT firms would face challenges because of project ramp-downs and vendor consolidation (by top players),” said Ruchi Burde, assistant vice-president (research) at BOBCAPS. 

“Also, top clients of some of these IT services firms held on to growth path which gave a boost to these players, especially Mindtree and L&T Infotech. Factors like currency benefits, pro-active cost management and pausing of wage hikes also helped these companies (in Q1).”